ey swillans © wsk mel coy po ISSN 1822-8402 EUROPEAN INTEGRATION STUDIES. 2012. No 6 STRATEGIC PLANNING AND MANAGEMENT IN PUBLIC AND PRIVATE SECTOR ORGANIZATIONS IN EUROPE: COMPARATIVE ANALYSIS AND OPPORTUNITIES FOR IMPROVEMENT leva Nartisa, Romans Putans, Tatjana Murayska University of Latvia, Latvia e-mail: ievad@yhr ly, romanspusans@gmal-com, tatfane muraysku@tu. by GoSKF hpi doi org/10.5755401.cis.0.6.1538 Management issues can be divided in owo large groups: governmental or public, with its specific aims, methods and cchatfonges, and private sector responsible for economical results, competitiveness and state revenues. Although these sectors shave so much in common in sustaining tke state, striving for excellence, fulfilment of European Union 2020 strategy and for tie best results, they are at the same lime very different, By theory and practice, one of the greates! methods how to improve iperjarmance, is benchmarking- both looking for the best in the comerete field and in different area, In the article authors ‘compare strategic planing and management issues in public aid private sector, thus idensifving strong and weak points of each system. Proposals are made how fo improve management of both sectors, implementing ideus from the best praxis cexanples and success stories in other management areas. ‘The purpose ofthe sindy i to analyse strategie planning, management and leadership in prasis of public and private sector thus identifying opportunities to improve other's sectors performance. Far doing this, authors have completed several tasks analysed strategic planning, management and leadership praxis in public sector, analysed strategic planning, monagement and leadership pracis in entrepreneurial sector, conducted comparative analyses of strategic planning and management processes in both sectors, made vonclusions and generated suggestions for improving the performance of governmental and private sector In their research auihors have used several methods: information content analysis method, logically constructive analysis ‘method, case analysis method. For the theoretical part of the research aushors explore the principles of strategie planning and organization management that were originally developed mainly in he United Stated, but for several decades have been successfully applied and developed in organizations in Europe. For the practical case study of the research authors have inited the scope of research to Latvia, a full status BU member state, which ata large scale represents the trends of strategic planning and management processes in EU and since year 2008 in many cases have been set as a good example for recovering from economic crisis throwgh smart strategie planning and management of public administration, Key results lead to conclusions that in public sector there is great emphasis on strategic planning part of management process, but implementing plan 10 clear activities and geting right result sometimes delays or is even missed. In private sector entrepreneurs tend 10 look short-term thus gaining results iu small every-day actions hut lacking greater sight 10 furure and therefor plundering chance of greater growth, Government should implement more client-oriented approach using best ‘exanples from entrepreneurial world. Private sector should learn how to generate concrete fong-term plans, delegate duties ‘ani nai to méx responsibilities in enterprise for greater results. Consolidating mentioned above, both sectors should learn {rom each other thus improving its competitiveness and performance for joined moving towards reaching goals of EU 2020 swaregy. Keywords: public secior entreprenew ship, Latvia, management, sirategic planning, private sector Tnvreduetion Strategic planning as an organization development tool as we know it nowadays started to be outlined in mid 1950ies and for more than 30 years was mainly used in private business sector while the concept and performing culture of public administration was developing entirely on the basis of national constitutions and laws. Today, in one or another way all organizations in both, private and public sectors, are using strategie planning as 8 tool for performance and development. Although the expected outcome of purposeful strategic planning and strategic management theoretically seems to be mainly the same in public and private sectors, i.e., accepted strategic 240 plan with clearly formulated vision and achievable goals binding employees of all levels of the organization, however the approaches and the usage of this tool differs in public and private sector. Its considered that private sector prevails over the public sector in efficiency and result oriented actions. Although this assumption is reasoned with lots of practical ‘examples and arguments, and efficiency’s prevalence of private sector over the public administration was proved riore than 200 years ago by the father of nowadays” economic theory, Adam Smith, who cleatly formulated that “it is not ffom the benevolence ofthe butcher, the brewer, or the baker that we expect our dinner, but from their regard to their ownISSN 1822-8102 EUROPEAN INTEGRATION STUDIES. 2012. No6 self-interest.” (Smith, 1776), Considering that the greatest teacher of public administeationipprivate sector, this argument ge public administration to work in its own self-interest, but discovers more efficient environment where 1 find the best management practices, for instance infield of «customer care, that can be adapted ina legal and rational way. Today, however, taking into aceount that strategie planning and management used in the public sector for well over 160 decades has become prevalent in governmental jurisdictions atthe supranational, national and local levels (Bryson, 1988, Eadie, 1983; Ring, Perry, 1985) and comparing the usage of this tool in public and private sectors itis nor that well decidedly who should lear from whom, There are strengths and weaknesses on both sides, Public and private sectors have so much in common in sustaining the stat, striving for excellence, fulfilment of European Union 2020 Suategy (European Commission, 2010) and for the best results, but at the same time these Fate also very different. These differences are grounds forapplying benchmarking method to identify possibilities for improvement. Same as in comparing to the best in business field, exactly looking for Linkage to different area gives most surprising results. [nthe age of knowledge every organisation has to compare i¢ to competitors not only to dynamics inside ‘organisation itself. Same is true with economic sectors as they need proposuls for improving than coucrete companies. Puspose of the article is to compare strategie planning and management issues in publicand private sector for identifying possibilities to work more efficient and in better results in both of these sectors. Effective strategic planning is remarkably topical and still improvable process that is being recognized as good practice of management and atthe same time it also makes healthy competition in public administration and private business sector in Europe, A lot ‘of public and private sector institutions and companies are very interested in exploration of new ideas and research methods and results in this field, Researching, developing and discovering questions of customer relationship and effective strategic planning, and rapid implementation of solutions have become a true necessity for progress of social political, and economical processes. Besides, by introducing the Cambridge process in late 1990-ies followed by Lisbon sirategy in 2000 ard FU 2020 strategy in 2010, the aspects of, strategie planning and organization management have taken ‘important role not only in organizational development of and within the EU, but also in deeper integration of the EU. itself by implementing focused and purposeful, “centralized”, common strategic planning where all EU member states take «equally important par in sustaining, development, integration, “Europeanization” end achievement of common targets and results, The main tasks completed during the research include analyses of different theoretical and practical views on siategie planning, management and leadership praxis in governmental and entrepreneurial sector; comparison of) results using SWOT analyses of public and private sector ‘and identifying strong and weak poinis, and success stories «as well as preparation of conclusions and eecommendations for improving the strategic planning and management in of public and private sector, does not encoura anagement even mare “4 Main methods used inthe research are information content analysis method, logically constructive analysis method tnd case analysis method. In order to identify the necessary adjustments in comparatively new theory of strategie planning sand to identify the space for improvements in applied praxis the practical examples are also compared with strategic planning and strategic management theory cases. Key results lead to conclusions that in public sector there is great emphasis on strategic planning part of management process, bur implementing plan to clear activities and getting right result sometimes delays or is even missed. In private sector entrepreneurs tend t0 look short-term thus gaining results in small every-day actions but lacking greater sight to future and therefor plundering chance of greater growth, Governments should implement more client-oriented approach using best examples from entrepreneurial world. Private sector should learn how to generate concrete long- term plans, delegate duties and not to mix responsibilities in ‘enterprise for greater results. Consolidating mentioned above, both sectors should learn from each other thus improving its competitiveness and performance for joined moving towards reaching goals of EU 2020 strategy. Short review of the origins af strategic planning In ancient Greck, the word strathgia meant the art of carrying out a military campaign. [fwe split the word, tratos (from Greek oxpatoc) means ,army” or “war” and ago would mean “Yo manage”. There are quite a few books writen exploring the art of war management during the ancient and ‘medieval times and researchers of today find couple of similar principles in strategic planning nowadays and in earlier history However, strategic planning as we know it nowadays is considered to be developed starting the mid 1950ies when firs: books on modem strategic planning and strategic ‘thinking were published. Among the first authors, the fathers of strategic planning several are to be named ~ Alfied Chandler (1918 ~ 2607), professor of business history in Harvard Business School in United States, Philip Selznick (1919 ~ 2010), professor of law and society at the University of California in United States, Igor Ansoff (1918 ~ 2002), Russian American applied mathematician and business ‘manager, and Peter Drucker (1909 ~ 2005), professor atthe New York University in United States. Alfred Chandler published is classic business book ‘Strategy and Structure” in 1962 in which he argued that all successful companies must heve a structure that matches their strategy rather than the other way round as many had assumed until then, He based his theory on an extensive study of large ‘American corporations between the years 1850 and 1920 — corporations such as Du Pont, General Motors and Sears, Roebuck. It was a time when businesses were developing from single-unit, centrally managed operations into umbrella {ype structures where a number of comparatively autonomous tunits shared certain overheads, in particular the strategic planning function (The Economist, 2008), Philip Selznick initiated the idea about interrelation of ‘organization's. intemal factors with elements of extemal environment that was described in his work .Foundations of the Theory of Organization” (Selznick, 1948). The essence of this idea nowadays is formed as strictly imprescriptible clement of strategic planning — the SWOT analyses nsss IN 1822-8402 EUROPEAN INTEGRATION STUDIES. 2012, No 6 (stengths, weaknesses, opportunities and threats), where the organization's strengths and weaknesses are analysed within the context of organization's opportinities and risks of extemal business environment (Selznick, 1957). Igor Ansoff invented so called “gap analyses” that was described in one of his fist books Corporate strategy” in 1969. The principles of gap analyses are still being Widely used when defining the gap” between state of play or the existing situation of organization and the future situation ‘where the company wants t0 be, the statsment of vision, When these «wo points are clearly set and formulated a plan of the gap reduction can be developed (Ansaff, 1969, The Economist 2008). Peter Drucker emphasized the necessity of organization's objectives and goals. An organization without the objective hhe compared 10 a ship without steering wheel, In 1954 he published the book ,Practice of Management” which later fumed out 1@ form the theory of objective management — MRO — “management by abjectives”, The essence of MBO is participative goal setting and according t» Drucker the goal setting within the organization must be integral and ‘widespread across all levels of oxganization’s. hierarchy, Ideally, when employses themselves have been involved with the goal setting and choosing the course of action to be followed by them, they are more likely to fulfil their responsibilities. The other major contribution from Drucker that is becoming more and more important in nowadays ‘organizational management is the role of intellectual eapital He advocated that intellectual work is not hierarchical within the team work more knowledgeable team member for a specific task will always be an informal interim leader, regardless ofthe sructure of tho hierarchy (Drucker, 1954). Later. in the second half of 20* century, another well- known academic appeared who writes about strategy and organizational management — Henry Mintzberg (bom in 1939), professor af Management Srudies MeGill University in Montreal, Canada. He initiated some critics 1owards strategie planning arguing thatthe label ,strategic planning” should be dropped because strategic planning has impeded strategie thinking (Planning Skills, 2012), He concludes that strategie planning often fails because it is not the same as strategie thinking. Planning is about analysis - about breaking 4 goal into steps, formalizing those steps, and articulating the expected consequences. Strategic thinking, in contrast, 1 about synthesis. t involves intuttion and creativity. The ‘outcome of strategic thinking is an integrated perspective, 2 not-too-precisely articulated vision of direction that must be free to appear at any time and at any place in the organization (Mintzberg, 1994, OF course, there are many more strategie thinkers and writers on the topic ~ Porter, Chan Kim, Mauborgne, Moore, Poister, Ring, Pery, Strib, Bryson, Vinzant and many, many others. Although initially strategic planning was mainly associated with and used more in a private business s and strong majority of authors focus on private business sector, however in 1980ies also public administration stared to notice that strategic planning principles can be used for its development or 242 Strategie planning in public administration Strategic planning and strategic management in public administration is closely related to the overall concept and culture of public administration, ic., the government essentially serves the community and should follow the changes in society, its values and needs According to a joint initiative of the Organisation for omic Cooperation and Development (OECD) and the European Union (BU) the strategic planni public administration level nowadays consists of two main ‘components management component and budget component. ‘The strategic management component generally consists of mandate (statement of mission), vision, values, intemal and extemal environment analysis, medium term priorities, Jitociions of activities, monitoring, and evaluation, reporting, while the budget component consists of curest situation analysis, objectives, results and performance indicators of the budget programs, funding programmes. A strategic plan of state institution is management and a budgetary planning ocument which assure medium term planning for contra public adminisiration institutions. Tt refers 10 the public policies under the competence of the institution and it offers a clear image of policies, commitments and measures that will be promoted at the institution level, but it isnot a public policy document itself. A strategic plan of state institution supports he shift from a resources oriented management to a results based management (Dinu, 2007) Scholars and practitioners have been interested in strategic planning and management in the public sector for well over «wo decades (Bryson, 1988; Eadie, 1983; Ring, Perry, 1985). Over that period, many books and articles have been published on this subject, and strategic planning hhas become prevalent in governmental jurisdictions at the federal, state, and local levels. Whereas it was novel 20 yeuts ago, it has become orthodox practice by now, There are some consistent findings that the way an organization implements strategy has consequences for outcomes and an ‘organization's performance. Studies found that linking the strategie plan to the budget, using the strategic plan to drive the organization’s overall performance management system (Poister, Strib, 2005; Poister, Van Slyke, 2002), and using performance measures to monitor the progress of strategie initiatives (Hendrick, 2003; Poister Strib, 2003) leads to better outcomes (Poister, Pitts, Edwards, 2010), Effectiveness of strategic planning as an effective tool of strategic management in public agoncies requires top managers’ active roles in defining the strategie direction of the organization and ereating an environment that recognizes strategie planning as a tool of strategic management. Also, it requires good working relationships between the strategic planning staff, unit or division managers, and the top ‘management team; the location of the strategic planning staff close to top management; integration of unit or division plans into an organization-wide strategic plan; and a planning process that is not too rigid or mechanical. Even though strategic planning has been used in various public sector agencies for more than 20 years, not much is known abot its effectiveness (Poister, Steib, 2004). A review of the extant literature by Vinzant and Vinzant (1996) concludes that public ‘organizations are not good candidates for strategie planning stem at centralISSN [822-8402 EUROPEAN INTEGRATION STUDIES. 2012. No 6 because of the difficulty in designing and implementing «in such environments (Backoff. Wechsler, Crew, 1993; Strcib, 1992), Its use inthe private sector, however, has reveived the attention and increased interests of public sector organizations (Ugbor0, Oveng, Spann, 2011, p88). As forthe client-orientation within the context of strategic planning, the private business sector in contradict to public ‘administration for longer time already admits that the most ‘important is the client but not profit, quality or other business matters. Both quality and profit depend on client. Client dines these matters. However, in recent decades similar ideas have come also into public administration, that has caused a creation of new public administration culture, where in the centre of attention ig recipient of public services ~ the client. Public institutions are implementing the principles of private business, focusing more on cooperation, cost reduction and achievement of results. Public administration is becoming more flexible and wansparent meeting the needs of customer instead of bureaucracy. Cooperation between the client and public administration has to become as simple as possible in terms of diminishing administrative burden on individuals and businesses in order to save customers’ time and money and support development of businesses, Importance oF the client in public administration recently has been even more highlighted in the objectives of national and EU strategic documents ‘that underline expanding the availability of public services. A Jot of public administrations in Europe are increasingly focusing on particular strategic objective ~ to become such ‘an organization so that clients’ consider them to be client- orientated. Main activities for obiaining the mentioned objective are ~ simplification of legal acts, simplification of meeting state liabilities, formation of call centres, designing and perfection of web pages, particular attitude and specific information to new clients, and implementation of electronic working environment and electronic services in order to ensure quick and convenient information and document exchange both inside the organization and between the public institution and client (Schneider, 2005). Strategic planning in public administration in Latvia ‘The development of united policy planning and coordination system in Latvia was started in 2000. In 2001 Policy Planning Guidelines was adopted by Cabinet of Ministers, which prescribes the basic principles for the policy development, types of policy planning documents and their hierarchy. In 2003 the Methodology Guidelines for Development of Institution Sirategic Plan was developed and the pilot project started ~ Ministry of Agriculture was the first who developed its Strategic Plan. According to the results of, pilot project, later, in 2006, strategic planning and mediuun ferm budget planning was introduced in all central state administration institutions ~ ministries and state institutions under the direction and authority of ministries, including state and municipal ageacies which also developed their strategic plansinline with the Law on Public Ageneies. Implementation of the strategie planning system was a substantial stop cowards linkage ofthe policy planning process and drafting of the state budget. ‘The key principle of strategic planning in public tudministation in Latvia is maximizing the integration of policy planning and budgeting process snd the main document 24 Cf strategic planning is institution's action strategy. The main goal of strategic planning process is achieve greater ‘government focus on results and more efficient management ‘of financial, material and hhuman resources by setting specific targets and expected outcomes. Action strategy of the state institution was set to be a medium-term management document, which becomes an integral component of the institution's medium-term budget planning, thereby harmonizing the planning of strategic objectives and financial resourees that are necessary for their implementation. Using action strategy state institutions are planning thei performance activities according to their financial capacity that is based on the budget adopted by the Parliament. The main targets and core activities are set based in analyses of institution's internal and external environment and available resources. [n order to precisely measure the achievements institutions are defining expected results formulated in s clear definition and ensuring continuity. Results should be consistent with the goals set by the planning documents and only in special cases a change of ‘wording and meaning of the result is acceptable Critical importance in implementing the strategic planning system was transition to the medium-term planning system of the state budget which was drafted by the Ministry of Finance. Medium-term budget planning was set to be a process which involves defining sate development priorities, fiscal objectives and strategy, budget objectives, priority lines of development and medium-term state budget expenditure. The primary Tegal act regulating this process was Cabinet Instruction No.8 “Procedure for Medium-ierm Budget Planning” of 27 August 2002. Amendments to the "Rules of Proceduce ofthe Cabinet ff Ministers” adopted in 2005 stipulated thatthe state budget ‘of 2007 should be drafted in accordance with the structure included in the programme part of ministries” strategie plans. This was intended 1 ensure integration of sectoral policies used for annual budget application of the respective direct administration institution. Linkage of state budget planning and action stratogies was staried by the implementation of the Guidelines for Medivin-cerm Budget Planning adopted by the Cabinet of Ministers on 5 April 2005. When developing the basic principles for policy planning, one the most important requirements was compliance with the feasibility principle by linking policy and budget planning. Primary elements of the linking process are a) Procedure for consideration and acceptance af new policy initiatives, b) Institution strategic planning, and c) Medium-term budget planning (The Cabinet lof Ministrs of the Republic of Latvia, 2012) Itis to be admitted though that the medium-term strategic planning and budgeting system did not work out entirely as it ‘was initially planned and Latvian State Chancellery updated development planning system which is now regulated by Development Planning System Law adopted in Parliament in 2008. The section 9 of this law finally structures the hierarchy Of the development planning documents in Latvia defining, that in drawing up the development planning documents, they shall be mutually co-ordinated and the long-term conceptual document The Model for Growth of Lawia: Human Being in the Fist Place shall be taken into consideration, The hierarchically highest long-term development planning document is the Sirategy for Sustainable Development of Latvia. The hicrarchically highest medium-term development planning document is the National Development Plan 3